Interest Rates Impact on Real Estate
By now, you may have heard that the Fed has cut interest rates for the first time in quite a long time. Many of my real estate friends are excited about this because they see it as a positive for the market. Based on the Fed lowering interest rates, I see three ways the real estate market could go.
Interest Rates Go Down-Prices Go Up
When the interest rate goes down, it may mean that more buyers can afford to buy houses. Considering the law of supply and demand, more demand could raise home prices.
Interest rates coming down impact the price of mortgages, such as mortgage interest rates. The interest rate has recently come down by half a percent or one percent from the most recent all-time highs. As interest rates come down on mortgages, people can afford bigger houses. Payments will be lower because of the cost of the interest.
Lower interest rates will drive up demand, potentially increasing the price of homes on the market. This demand is the most touted result of lower interest rates, and based on social media and talking with my friends in the real estate market, it’s been the most popular view.
Interest Rates Go Down-Prices Go Down
Secondly, the Fed lowering interest rates could negatively impact the economy, causing some market worries. One ramification may be lower home prices.
While not the most likely option, prices could go down. Historically, when the Fed starts cutting rates, it means the economy is slowing down. Sometimes, it has even meant we were heading for, or already in, a recession.
Now, I don’t want to cause panic or worry because that doesn’t always have to happen. At the same time, if the Fed is lowering interest rates, it means they see something going on and want to ease money so that there’s more money in the system.
One impact could be layoffs that are coming or starting to come that we haven’t yet heard about. If people lose their jobs, they won’t buy houses, which could impact prices. Even though interest rates are lower, a related effect may be layoffs sometime in the near future. Concern for job security may cause some prices to drop because fewer potential buyers are in the market.
Middle Ground
The final option is that it’s maybe somewhere in between. The Fed is only one component of a larger picture, and interest rates are just one component of the overall real estate market.
The labor market seems to be strong currently, and interest rates are coming down, which means there may be people who can afford more of a house. Real estate prices have been going up steadily for the past few years.
All these factors combined make it reasonable that we could have a steady, as-you-go real estate market. We may not have the same skyrocketing effect that we had coming out of Covid, but we still potentially have some positive movement forward.
Final Note
Ultimately, I bring this up because most of my clients, most folks listening to me, are wondering if now is the time to buy a house or if they should wait until later. For me, it comes down to your personal situation, not so much what’s happening in the market.
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